Dating back to Adam Smith's The Wealth of Nations, one of the foundations of capitalistic economics, it is believed that a purpose of free trade is to create wealth. Reduced trade barriers, whether tariffs or quotas, lead to increased commerce between nations and increased wealth. That does not mean that each individual will be better off than before. There will be individual winners and losers. But on the whole, there is an expansion of economic opportunity which suggests that economic welfare will increase.
This should be the goal of the current negotiations, known as the Doha Development Agenda, occurring within the World Trade Organization (WTO). However, those negotiations look more and more like an attempt to redistribute existing wealth, rather than the generation of new wealth. Developing countries are targeting subsidies in developed countries and market access to developed countries' markets — ignoring the larger economic gains that would be generated by more trade between themselves.
The cotton agreement included in the Hong Kong text is a case-in-point. It is more of an attack on U.S. cotton than a genuine effort to address the economic needs of cotton-producing least developed countries (LDCs). The African countries did not try to increase their market access to 92 percent of the world's mill use. Instead they sought increased market access to developed country cotton markets — which represent only 8 percent of world mill use. Instead of focusing on how to grow cotton markets, they focused on more and unfair concessions from the U.S. cotton program.
On a broader scale, duty-free, quota-free access for least developed countries was extended to 97 percent of products, but the access was only deemed mandatory for developed countries. It was merely a suggestion for any developing countries who considered themselves in position to do so. Unfortunately, this remains consistent with the broader theme of reduced ambition in market access to developing countries. This theme contradicts World Bank and other studies that show the greatest economic benefits to be increased trade between developing countries due to reduced barriers.
The recent ministerial meeting in Hong Kong is just the latest step in a negotiating process that has struggled to maintain momentum. Early on, the goal of the Hong Kong ministerial was the completion of formal modalities, which in trade-speak are the formulas or approaches that will determine final commitments. However, in the weeks prior to the meeting, expectations for Hong Kong were scaled back as it became increasingly clear that major disagreements still existed in key areas, particularly market access.
The new objective for Hong Kong was to address some key questions that would allow the negotiations to conclude in 2006. A bigger objective for Hong Kong, although not directly stated, was to avoid the type of collapse in talks that occurred in Cancun in 2003. By this measuring stick, Hong Kong was deemed a success. There was no collapse in negotiations, and the ministerial produced a declaration statement cited by some as a step forward in the negotiations.
Those touting the achievements of the ministerial will note that an end date for all export subsidies was secured. In addition, they will note the commitment for duty-free, quota-free access for the 32 LDCs in the WTO. And, finally, they will note the agreement on cotton. However, achievements are in the eye of the beholder, especially with regard to the latter two. What are hailed as achievements by some should be the cause of concern by the U.S. cotton industry, in particular, and U.S. agriculture, in general.
I should be clear that the Hong Kong declaration is not a final agreement. There is a tremendous amount of negotiating left to occur, and the most difficult questions and details remain unanswered. However, the declaration is another step down a very troubling path.
First, the text continues to single out cotton for concessions that are different than the whole of agriculture. In response to the coordinated efforts of four West African countries producing less than 3 percent of the world's cotton and an effective media campaign by Oxfam, the WTO has taken the unprecedented step of elevating cotton above all other agricultural commodities. The text calls for an elimination of cotton export subsidies by developed countries in 2006, seven years ahead of the schedule set for the remainder of agriculture. On market access, cotton exports from LDCs will be given duty-free, quota-free access to developed economies. Finally, the text states the objective that trade-distorting domestic subsidies for cotton be reduced more ambitiously and quicker than agriculture in general.
As we assess the results of Hong Kong, we have good reason to be concerned. We should be concerned because the attention on cotton will not stop. We should be concerned about the difficulty of obtaining real gains in market access as the U.S. is pushed to give on domestic support and open its markets. Finally, we should be concerned by WTO Director-General Pascal Lamy's closing observation that Hong Kong produced “a rebalancing in favour of developing countries, whose interests have now been placed at the heart of our negotiations…”
In short, we should be concerned that the current path will lead to an agreement that does not create new wealth, but merely tries to redistribute the existing wealth, giving up on the tried-and-tested notion of economic gains for all.
Gary M. Adams is the National Cotton Council's vice president of economic and policy analysis.